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Dynamic measures of asymmetric & pairwise connectedness within an optimal currency area: Evidence from the ERM I system

David Gabauer

Journal of Multinational Financial Management, 2021, vol. 60, issue C

Abstract: This study introduces two novel metrics that calculate the degree of shock asymmetry which can be utilized to examine whether countries in a currency area face symmetric shocks. In an attempt to answer whether the symmetric shock assumption is fulfilled in the European case, the exchange rate transmission mechanism of all 14 countries that have joined the ERM and Sweden is explored. The findings point to the existence of two potential OCAs whereas the first and most stable one would be between Austria, Germany, and the Netherlands, and the extended second OCA would further include Belgium, Denmark, France, and Luxembourg.

Keywords: Exchange rate spillovers; Optimum currency area; OCA determination (search for similar items in EconPapers)
JEL-codes: C32 F15 F33 F36 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.mulfin.2021.100680

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Journal of Multinational Financial Management is currently edited by I. Mathur and G. G. Booth

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